How to Avoid Crypto Scams

The entire crypto industry is volatile and has attracted a lot of public interest. This in itself makes it an appealing prospect for fraudsters, as they see it as a lucrative sector, but there is much more to it:

• Irreversible transactions: There is no way for the sender to reverse a transaction. If a fraudster takes over an account, they can send cryptocurrency to whichever wallet address they want.
• Pseudonymity in payments: There is no need for users to share personal details when making transactions. Technically, there is a way to track cryptocurrency payments on blockchain networks, but fraudsters can create multiple wallets and move the funds, which makes it all the more difficult.
• Instant & decentralised blockchain transactions: Blockchain networks are decentralised, so there is no payment protection from financial institutions if someone steals private keys from users. Since payments are instant, the digital assets are gone in a flash, and there is no going back.

This is not something that should scare you. Understanding blockchain networks and how crypto payments can be subject to fraud will help you avoid common mistakes when making payments.

Here are the most common telltale signs that will help crypto users recognise they might be the target of fraudsters:

• Guaranteed returns: Crypto fraudsters will use the allure of risk-free profits to bypass users’ natural scepticism. Crypto prices fluctuate wildly, depending on several factors, so it is impossible to get guaranteed profits on anything you invest.
• Urgency and pressure: Some crypto scams rely on urgency. Scammers will try to push users to act immediately by citing a “pre-sale” or a “secret investment opportunity”. Here, they rely on the people’s fear of missing out (FOMO).
• Requests for private keys or seed phrases: Legitimate crypto companies will never ask you for sensitive information like private keys or seed phrases, just like a bank won’t ask you to share your card PIN.
• Unsolicited contact: Cryptocurrency scams can start with an unexpected text, email, or call from someone you don’t know. They may claim to have texted the “wrong number” to start a conversation and lure you into an investment scheme.
• Withdrawal difficulties: This means that you are likely on a fake website that is intentionally blocking you from making withdrawals. This is the final stage of a cryptocurrency fraud that exposes a website and a money dashboard that are completely fake.
• Too-good-to-be-true returns: Anything that seems too good to be true likely is. A cryptocurrency investment scam may claim a certain percentage of daily profits or instant payouts for investors who “pay early”.

The red flags above can apply to all types of investments, but here are a few common formats that can help you prevent them earlier.

Phishing

Phishing scams are easy to adapt to crypto. In this scam, a user is contacted by a seemingly reputable platform. Oftentimes, phishing messages contain “irresistible” offers like promotions and one-time deals. Phishing can also lure users to click a link and provide sensitive information by scaring them that their account has been compromised. Don’t click on suspicious links and always visit websites by manually typing the company’s website.

Rug Pulls

Rug pulls are often mixed with pump and dump schemes, but they are inherently different. In rug pulls, the original project developers alter the smart contracts to make trading the token virtually impossible. Then, they steal the invested funds, and the scammers disappear. You can recognise a rug pull by seeing Discord and Telegram channels filled with generic hype messages and the absence of independent audits on a smart contract’s code.

Pig Butchering (Investment Fraud)

A crypto investment fraud can see scammers use friendly conversation to build trust. This can happen over the course of weeks or months before they introduce a “big crypto opportunity”. Due to its nature, pig butchering schemes are also known as romance scams, as scammers gradually build up trust and disappear once they get what they are after. Don’t engage in unsolicited communication with strangers, especially if you don’t know their intentions right from the start.

Fake Giveaways and Impersonation

Fraudsters can exploit social media networks to promote fake crypto giveaways. Here, they may claim that certain companies or celebrities will double any crypto you send to a certain wallet address. Crypto giveaway scams can contain time-limited offers that will leave very little time for users to do their own research and try to verify their validity. You can easily spot cryptocurrency scams on social media, so never share information with addresses advertised in this way.

Pump and Dump

Pump and dump crypto scams work by promoting a new crypto token and rapidly inflating its price. Aggressive marketing and fabricated endorsements are key here. The token is positioned as the “next big thing”. Once investors buy the crypto asset and its price rises, scammers will exit by dumping or selling the tokens, and the token’s value will plummet.

Fake Wallets and Apps

Fake wallets and apps are among the biggest crypto scams. They purport to be a big investment opportunity. Fraudsters can present websites with small spelling mistakes that are hard to spot. There, users are lured into entering credentials or downloading malware. It is important for you to remain vigilant, double-check the website address before you provide any personal information, and download software from official websites or app stores.

Address Poisoning

Address poisoning is a scheme where the scammer monitors your crypto wallet on a blockchain network and identifies where you frequently send funds to. Then, the fraudster will generate a fake wallet address that can match the first few characters of the wallet you send cryptocurrency to. They will use that wallet to send you €0 so that the fraudulent wallet appears high on your transaction history. If you are not careful, the next time you want to send money to your trusted contact, you will end up approving a transaction to the scammer.

Crypto scammers systematically find and exploit victims through several channels:

• Social Media and Messaging Apps: Scammers monitor public groups and discussions related to crypto. If they see you are active in the crypto world by commenting on forums or posts, you may become a target.
• Search Engine Ads: One of the most dangerous crypto frauds. Scammers buy paid ads for popular crypto brands, exchanges or wallets. Then, you may search for a wallet to log in, for which you will get a lookalike website that shows up above the official one. You can enter your login credentials and lose your assets.
• Wrong-number and Random Contact: Scammers can build attractive and fake profiles on different platforms and use a friendship tactic to form a bond with a person and gradually build a friendship that can evolve into a scam.
• Compromised Accounts: Hackers can take control over a certain account (a crypto project, influencer, etc.) and post an urgent announcement about a “limited edition offer”. You will be prompted to share private keys, and then the scam is finalised.

Thankfully, there are easy ways for you to spot the warning signs and prevent cryptocurrency scams. Some research has shown that there is approximately a 40% chance that securing your accounts and wallets can prevent cases where you may be scammed, but there are more steps you can follow. Keep reading to learn about the best safety options.

Secure Your Accounts and Wallets

Always use a different password for accounts that link you to your crypto coins. 2FA and authenticator codes are decent security measures that you can implement to protect your accounts as well. Seed phrases shouldn’t be stored digitally; a better idea is to write them down and store them offline. If you don’t use a hardware wallet and you want a hot one, only download it from official sources.

Verify Before You Transact

Make sure to check every wallet address character before you make a transaction. Don’t rely solely on the first and last characters. Before depositing any funds to a website, make sure to check whether it is a legitimate business by double-checking the website URL and noting its regulatory status. Reliable exchanges and financial platforms are often required to register with financial authorities in countries.

Apply Healthy Scepticism

Any investment advice linked to the DeFi sector starts with the premise of applying healthy scepticism to everything. All unsolicited investment opportunities should immediately be flagged as suspicious. Your first order of action should be to perform an identity verification of anyone who claims to represent a platform or an exchange. Don’t fear missing out, if a good opportunity presents itself, it can wait for you to do a bit of research first.

If you have already been scammed, you must act immediately to prevent further losses and secure your assets:

• Stop sending funds immediately: If you have already connected your wallet to the site and you notice it is being drained, immediately open your settings and revoke any allowances to stop the transaction process.
• Document everything: Don’t erase everything linked to the fraudulent transactions. You will need all the proof you have for law enforcement. Take screenshots of all chats, emails, phone numbers, and anything else that can be useful.
• Report to relevant authorities: Reporting the fraud and the platform to the relevant law enforcement government agency can help blacklist it and help prevent future fraud.
• Alert the platform: If you know that your funds were sent to a specific exchange like Binance or Coinbase, you can immediately report the scam to them. Their compliance teams will then freeze the funds, and you may retrieve them.
• Do not pay recovery services: Anyone who messages you claiming they can retrieve the money or hack blockchains is just seeking to scam you for the rest of your funds. Don’t fall victim twice and only deal with official authorities.

Building a permanent defence against scams requires you to slightly alter your approach and implement a few security measures:

• Opt for cold wallets: Move your long-term crypto investments from your hot wallet to cold storage. Hardware wallets keep your private keys offline, so your recovery phrases will stay safe even with hacker attempts.
• Eliminate SMS 2FA: Remove your phone number as a verification method and choose app-based authenticators. SMS swapping is a common scam where hackers hijack your phone number and get informed on all your incoming texts, so this is how you can prevent it.
• Change your social media habits: Never post screenshots of crypto balances or brag about profits online. Real crypto projects will never directly contact you on Telegram or Discord, so don’t fall for flashy DM promises.
• Bookmark your sites: Don’t rely on search engines to visit exchanges or crypto wallets. Bookmark the right URL once and only access it from there.

Crypto scams are successful only when they manage to exploit trust, urgency and unfamiliarity. They are not very sophisticated, which makes it easy for users to defend themselves. Preventing crypto scams requires a vigilant approach that sees you confirm whether you send cryptocurrency to official sources or people you know, and treat any unsolicited request with a dose of suspicion. Being informed is genuine protection, so if this article was helpful, we invite you to check out our other crypto guides before using any cryptocurrency.